Bitcoin: Roller Coaster of Love

It’s up, it’s down. It’s the future of commerce one day, just another Internet bubble the next. It’s the end of government-controlled currency and banking … but wait, the US government’s Financial Crimes Enforcement Network has something to say about that. It’s Bitcoin, and you’ve almost certainly been hearing about it, even if you’ve never used it.

As an anarchist, I’m a big fan of competing currencies, especially competing freed-market currencies not issued by, or subject to direct manipulation by, states. The reasons for that should be obvious: If government can’t supervise and control the flow of money, it gets a lot harder for it to steal (“tax”) part of that money and spend it on killing and enslaving people. So Bitcoin made quite an impression on me, and I’m still sold on it.

One issue I’ve come around on is the absence of commodity backing. In the past, I’ve been of the opinion that to be sound a currency should actually represent a pile of some scarce, homogeneous material (e.g. gold) that’s valuable for other purposes in addition to constituting a convenient medium of exchange.

The problem with commodity currencies, though, is that those piles of material have to be physically stored. They’re vulnerable to roving gangs of thieves, including but not limited to government “law enforcement” agencies. More than one commodities-based currency has been shut down, or at least yanked into government regulatory schemes, by the scruff of its neck.

Bitcoin is just encrypted bits; it’s created by the process of crunching the numbers involved in exchanging it. That drives commodities-based currency aficionados nuts: No pile of gold in a vault. But it also represents a kind of security: No number of jack-booted thugs can break into the vault and take the stuff backing the currency, because there IS no stuff backing the currency. And because the generation and exchange of Bitcoin is distributed and peer-to-peer, governments would pretty much have to shut down the Internet to put a stop to Bitcoin commerce.

Said commerce, however, is not completely immune to government intrusion.

Internet services that facilitate the storage and use of Bitcoin may be vulnerable (and indeed some are trying to “go legit,” or else shutting down in the face of government threats).

Contrary to popular belief, Bitcoin is not inherently anonymous. In fact, every last Bitcoin transaction is transparent and publicly viewable. You can use Bitcoin anonymously, but it takes a little work: Don’t keep your wallet at one of those vulnerable services, generate new addresses for each transaction, anonymize your IP address or work from public Wi-Fi connections, etc. And help is on the way: The good guys are working on ways to make Bitcoin commerce more private and secure.

So, why the “boom and bust?” The main reason is that Bitcoin’s user base is still fairly small: “Buy low, sell high” traders constitute a large portion of that base and thus have a big effect on price when they decide to take profits, or panic, or sit on their stacks. There are “forex” markets in all currencies, of course and the relative values of those currencies fluctuate, but not as much, because for every day trader bouncing back and forth between dollars and euros and yen, there are hundreds or thousands of people using dollars, euros and yen as money to buy cars, concert tickets and bags of potato chips with. As Bitcoin’s user base grows, and as the proportion of people using it as a medium of exchange grows versus those treating it as an “investment” to grab low and dump high, its valuation will probably stabilize quite a bit.

Is Bitcoin the end of political government? No, but it’s part of the beginning of the end of political government. Hang on. It’s going to be a heck of a ride.

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2 responses to “Bitcoin: Roller Coaster of Love”

Ultimately, I don’t think any technological solution is asolution to government; they can always use sufficient threat or force to maintain their position, as we’ve found with the internet in general. Technologies can make things awkward for them, but the lawmaking power (and its enforcers) is always the trump card. Most people won’t use an illegal currency, if the State declares it illegal.

On commodity currencies, I am no longer in favour. I think the history of the gold standard proves that they inevitably break down; first of all, money is gold. Then it’s receipts for gold. Then it’s tokens which notionally represent gold. Then it’s just the tokens. Once people start carrying bits of paper (or bits of data) about, they come to see that as the money, not the commodity. At that point, even if you’re on a “gold standard”, the gold is no longer the money in practise and, over generations, the currency will become a fiat until the pretence of commodity backing has to be abandoned.

It’s also worth noting that the famous Weimar hyperinflation happened in an economy with a central bank, on the gold standard. Commodity backing doesn’t stop the State printing money. It just results in even more chaos when they do. So we may as well just accept that and look to keeping fiats under control, because that is what all currencies turn into anyway.

No one will use an unlawful currency? Probably true but only under certain conditions. The Cyprus experience suggests that all is not what it seems Bitcoin played a part in that one for a few moments. What exactly is lawful? Legal tender laws are absurd and do not protect against hyperinflation. The post office was supposedly a monopoly but what about UPS, DHL and FedEx? The same can be, and is being done by Bitcoin about money. There isn’t much distinction in practice between a cheque and a bank note they are, in origin, much the same thing. In the UK cheques are non-negotiable for the most part. That does not have to be the case. Money is what the users believe it to be more than anything else and that doesn’t have to be in the gift of the government the UN or the IMF. It is simply a point of view nothing more; change that and then what?

As if we haven’t got it about sequestration of gold and bank accounts let alone tax and tax and spend. Alternative currencies will benefit governments too; if you destroy your own currency what will you do when the Zimbabwe moment arrives? Simple use the resources the Weimar folks never had i.e. alternative money that is up and running and works. Go Bitcoin! It is infinitely elastic and could handle anything its servers are capable of coping with. Just ad a bunch of PCs, or better still, do what the SETI folks did and get the masses of computer users out there in on the deal sharing their computer power to drive the system. Dispersed storage and processing power much like the Beowulf Linux idea would make everyone part of the process including governments.

Inflation and currency failure at some point has to end simply because it doesn’t work well in the long run. Besides moving into gold, which isn’t all that liquid for everyday use, why not add diversity to the monetary system by introducing dispersed currency in virtual form? It would be perfectly possible to expand a virtual currency system with as much of it backed by gold or other entities as the punters require. Risk managed money as a non-statist entity is possible it just hasn’t sort of been invented yet. Or am I wrong here? This process if conjured up with all electronic detail in place could catch on so fast, especially in any meltdown, so as to take money out from under the blocked noses of the usual suspects. We don’t need to have an Argentina, Zimbabwe or Weimar moment ever again.

The idea of black market money that is dispersed so much and so far that even governments need to use it to survive has its neat possibilities. If everyone owns it rather like language but beyond borders; who can control it in the end? Shutting it down isn’t an option that makes sense, without commerce there is no tax revenue. If you switch off the internet you close the money supply that would have a very curious effect. Printing of money is coming to an end we now have the era of typing a number into a computer to create a bank loan out of thin air so why not extend the concept a bit? Bitcoin is a precursor to a concept that can be expanded and balanced with some form of hierarchy of value storage akin to gold or even including gold or other items and commodities as a backing of the system.

Besides storage of value there is a need for delivery when required with the ever expanding courier services worldwide this shouldn’t be too much of a problem the likes of our friends UPS, DHL and FedEx are ready and waiting. Of course your friendly laptop is there instantly to print out value notes that are encoded with secure value somewhat like your old sagging bank note with all that fancy print and no real substance. Which one might you prefer?

I takes a nudge or two to do this, first to dream and then to implement and innovate.